Matters:

The company released its 2024 mid-year report. In the first half of the year, the company achieved revenue/net profit attributable to mothers/net profit excluding non-return to mother of 11.05/0.63/0.57 billion yuan, +10.9%/4.7%/+4.5% year-on-year. In the second quarter of a single quarter, the company achieved revenue/net profit attributable to mothers/net profit excluding non-attributable net profit of 5.57/0.25/0.24 billion yuan, +9.6%/-3.3% year-on-year.

Commentary:

Traditional businesses are growing steadily, and online growth continues to be high. In 24H1, the traditional core business achieved revenue of about 4.2 billion yuan/yoy +8.7%, of which Q2 achieved revenue of 2.04 billion yuan/ +5.7%. By product, 24Q2 writing tools/student stationery/traditional office achieved revenue of 0.57/0.71/0.86 billion yuan/yoy +13.0%/-0.3%/+4.7% respectively.

The company uses the idea of explosives to develop products, in line with the omni-channel layout, focusing on improving the quality of offline single stores and effective product delivery. Online channels further promote new channel businesses such as Pinduoduo, Douyin, and Kuaishou. 24H1 Chenguang Technology achieved revenue of 0.483 billion yuan, an increase of 28% over the previous year. In addition, the company also rapidly promoted overseas market development, developed localized products according to local conditions, and achieved revenue of 0.48 billion yuan/yoy +14.8% in the first half of the year.

Major retail stores operate in a refined manner to maintain a steady trend of opening stores. In 24H1, Chenguang Living Center (including Jiumu Sundries Club) achieved revenue of 0.73 billion yuan, +20% year over year; of these, Jiumu Sundries Club achieved revenue of 0.69 billion yuan, +22% year over year, and achieved net profit of 8.97 million yuan. As of 24Q2, the company had 709 major retail stores across the country, including 671 Jiumu Grocery Store (32 more than at the end of the first quarter) and 38 Chenguang Living Center (down 1 from the end of the first quarter), continuing the steady trend of opening stores.

Colipu accelerates customer development, motivates implementation, or further unleashes business vitality. In the first half of the year, Colipu 24H1 achieved revenue of 6.12 billion yuan, +11% year-on-year, contributing 0.13 billion yuan to net profit. Projects such as CNNC and China Huaneng were successfully renewed during the period, and new projects such as CNPC and China Electric Equipment were expanded. At the same time, Colipu increased capital and shares, which is expected to further motivate management and employees to work.

The gross margin remained stable, and the expense ratio increased slightly. In 24Q2, the company achieved a gross profit margin of 18.7%, -0.7pcts/month-on-month -1.5pcts, and remained stable. On the expense side, the company achieved a sales/management/finance expense ratio of 7.3%/4.7%/-0.2% in the second quarter, -0.1/+0.3/+0.3 pcts year over year. The increase in the management expense ratio was mainly affected by Colipu shares. Taken together, the company's net profit margin for the second quarter was -0.8pcts to 4.5% year-on-year.

Investment advice: The company's core business advantage is stable, and the revenue contribution of Colipu and major retail stores continues to increase, and I am optimistic about the continuation of the company's performance growth. Considering weak demand and the impact of Colipu share payments, we slightly lowered the company's profit forecast. We expect net profit to be 1.692/1.932/2.195 billion yuan for 24-26 (1.804/2.155/2.518 billion yuan 24-26 years ago), corresponding to PE 14/12/11X. Referring to the absolute valuation method, the target price was 37.9 yuan/share, and the “strong recommendation” rating was maintained.

Risk warning: offline recovery falls short of expectations, traditional core businesses are facing transformation challenges, industry competition intensifies, etc.